Long before man learned to write he kept accounts. Such was the case in ancient Peru where the medium employed was the quipu, or knotted string. A single knot meant 10, two single knots 20, a double knot 100, a triple knot 1000, and so on to larger numbers. The story was repeated in China and other ancient cultures.
When writing emerged in the fertile Mesopotamian valleys it did so in the form of commercial records. The famous Code of Hammurabi (circa 2285-2242 BC) contained several rules pertaining to accounting, for instance:
- If the merchant has given to the agent corn, wool, oil, or any sort of goods to traffic with, the agent shall write down the price and hand over to the merchant; the agent shall take a sealed memorandum of the price which he shall give to the merchant.
- If an agent has forgotten and has not taken a sealed memorandum of the money he has given to the merchant, money that is not sealed for, he shall not put in his accounts.
Turning to Egypt we find civilizations flourishing in the fertile valley of the Nile as early as 5000 BC. Here, as in other ancient cultures, the necessity for accounts preceded the use of money. The scribe (as these early accountants were known) maintained records on papyrus, using a calamus (feathered quill) as the writing instrument. Erman observes that "numerous documents have come down to us showing how accounts were kept-these documents show exactly how much was received, from whom and when it came in, and the details of how it was used."
The Bible furnishes a number of references to accounting among the Israelites, and, according to Boeckh, the Athenians had a highly developed system of accounting. Logistae, as accountants were called in ancient Athens, maintained very detailed records for private individuals as well as public agencies. Important public records were engraved on stone tablets and exposed in public places. A number of these survive to our times, including those contained in the Elgin Marbles collection in the British Museum. Another interesting medium of accounting in Grecian times was the abax or sand tray. Appropriate records were maintained by sketching in the sand. Moistening would remove an existing record and pave the way for a new one.
It is understandable that the Romans, with their well-known penchant for administration, should expand further the art of accounting. The Roman genius for rule by law is widely recognized: following his own admonition that "justice is the constant and perpetual will to give each man his right," the Emperor Justinian ordered the codification of Roman law (533 AD). This action greatly influenced the history of the world, for as Lord Bryce observed, "there is not a problem of jurisprudence which it does not touch: there is scarcely a corner of political science on which its light has not fallen." While at its zenith 50 million people lived under the shadow of the Roman Empire, more than a billion people presently live under legal systems which descend directly from Roman law.
But accountants are also indebted to the Romans. The Italic tribes which settled upon the site of the Seven Hills of Rome around 750 BC used pecunia ("heads of cattle") as currency, from which the term "pecuniary" comes. The calculus developed as a tool of accounting and provided principles of arithmetic logic and numerical manipulation which undergird our present-day computers. Counters-those indispensable artifacts of gambling-had their origin in accounting. By moving counters from one box (account) to another, records were maintained. This activity, known as casting the accounts, allowed for the first simulations of accounting records.
The Renaissance
As we move to the period of the Renaissance (1300-1600 AD), significant impetus to accounting hailed from the Italian peninsula. Synthesizing the art of accounting to his time and adding his own unique genius, a mathematician named Frater Luca Bartolomes Pacioli published his famous treatise on accounting on November 10, 1494. It bore the awesome title ofSumma de Arith-metica, Geometria, Proportioni et Proportionalita, which means "Everything About Arithmetic, Geometry and Proportion."
The double-entry system of accounting, devised by Pacioli, remains intact to this time, surviving the onslaught of computerized accounting systems. Simply stated, the concept behind double-entry is that every accounting action has a cause and effect relationship. If a proprietor invests $1000 in his business, that amount can be traced to some outcome. In the typical instance the payment would be lodged in a checking account in the name of the business, hence:
Cash $1000 <=> Proprietor $1000
If $500 is spent to acquire inventory to be sold in the course of business, a reduction in cash would be made in favor of an increase in inventory:
Cash - $500
Inventory - 500
Total- $1000 > Proprietor $1000
By convention, cash, inventory, and other resources are called assets, while claims against those assets on the part of owners or creditors are called equities. Other familiar terms that are widely used in modern accounting come from this treatise, including debit and credit, inventory, journal and ledger.
Double-entry made it possible to account for multiple ownership interests, paving the way for the partnership and corporate forms of business. Similarly, accrual accounting owes its refinement to double-entry, because Pacioli's method makes it possible to match accounting transactions against appropriate events such as sales or time intervals. More importantly, however, the concept of cause and effect in economic transactions undergirds much of the theoretical constructs which deal with such crucial matters as economic welfare, the distribution of wealth, tax burden, cost-benefit analysis, or measurements of efficiency.
During the Renaissance, accounting became firmly established in the curricula of Italian universities. Giorgio Vasari in his Lives of the Artists describes the typical education of the Renaissance artist as consisting of reading, writing, and accounts. We also know of the existence of textbooks in accounting and auditing during this period.
